Legislature(1997 - 1998)
03/18/1998 09:20 AM Senate FIN
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* first hearing in first committee of referral
+ teleconferenced
= bill was previously heard/scheduled
+ teleconferenced
= bill was previously heard/scheduled
SENATE BILL NO. 337
"An Act relating to the mandatory incorporation of
certain boroughs in the unorganized borough and to
certain third class boroughs; and providing for an
effective date."
Co-chair Sharp convened the committee meeting and reviewed
the agenda. He noted that the evening meeting on SB 337 for
the taking of public testimony was scheduled for 6:00 p.m.
LIO participation at this hearing was "listen only" and
included Anchorage, Delta, Fairbanks, Tok, Kenai and also
off-net radio. However, HB 53 would include public
testimony via teleconference.
Marilyn Wilson, staff to co-chair Sharp was invited to join
the committee. She read a short sponsor statement to SCR 11
into the record. It was noted that as Alaska's senior
community grew it was necessary to plan for the long-term
care and needs of these citizens. The cost of providing
long-term care is becoming insurmountable to the State and
to private citizens. SCR 11 would create a long-term care
task force with a mission to review the findings of the
working group established in 1996 and to develop an
equitable plan to provide a sound and affordable long-term
care option for all Alaska's senior citizens. It was urged
the committee pass SCR 11.
Senator Torgerson MOVED amendment #1 and WITHOUT OBJECTION
it was ADOPTED.
Senator Adams MOVED amendment #2. Co-chair Sharp requested
that some line numbers be inserted on page three line
fifteen and Senator Adams concurred. (pause on record)
Senator Donley OBJECTED for discussion purposes. Senator
Adams said rural elders were being moved into Anchorage and
basically the services needed to be coordinated. He wanted
a review of the existing elder care services in rural Alaska
to make it compatible with the pioneer home system. Senator
Donley voiced his concern with the setting up of a task
force under the Administration because he felt they grasped
for something that was not originally intended by the
Legislature or statutes. Senator Parnell voiced his
concern along similar lines. He recommended the deletion of
"rural" because the care should be provided all elders
throughout the State.
Senator Phillips MOVED amended amendment #2 to delete after
"demands" and insert "." WITHOUT OBJECTION it was ADOPTED.
Senator Donley MOVED amended amendment #2 to delete "rural"
and insert "including rural Alaska". WITHOUT OBJECTION it
was ADOPTED.
Co-chair Sharp asked the committee if there was any
objection to amended amendment #2 and WITHOUT OBJECTION it
was ADOPTED.
Senator Phillips MOVED amendment #3 and referred to page
two, line twenty-one. Senator Adams requested the amendment
be submitted in writing. Senator Phillips indicated that he
would have the drafters come up with the appropriate
amendment #3 to be submitted on the Senate Floor. There
being no objection, Senator Phillips MOVED SCR 11(FIN) out
of committee and WITHOUT OBJECTION it was REPORTED OUT with
included conceptual amendment #3 and accompanying fiscal
notes: LAA/Leg. Council, $20.7; Gov./Exec.Operation, zero;
and Department of Commerce and Economic Development, zero.
SENATE BILL NO. 337
"An Act relating to the mandatory incorporation of
certain boroughs in the unorganized borough and to
certain third class boroughs; and providing for an
effective date."
Co-chair Sharp recalled SB 337 before the committee. He
noted the section summary in the file provided by Tam Cook
from Legislative Legal.
Senator Adams voiced concern over the propriety of the bill
before this committee. He said it should properly be before
Community and Regional Affairs committee with like bill, SB
30. The debate regarding mandatory boroughs was already
before this committee.
Co-chair Sharp noted the concern of Senator Adams and also
that objection was voiced on the Senate Floor.
Tam Cook, Director, Legal Services, Legislative Affairs
Agency was invited to join the committee. She briefly
walked the committee through the section summary. She noted
that there have been mandatory borough proposals before the
Legislature since the Fourteenth Legislative Session. She
explained that the bill required the incorporation of areas
currently in the unorganized borough into third class
boroughs, but it would treat the third class borough
differently with respect to providing education. She said
as far as she was aware the Legislature had never considered
a bill such as this. Essentially, the bill required
incorporation of third class boroughs along the lines that
the local boundary commission has recommended for borough
incorporation but would preserve home rule cities and first
class cities within the new third class boroughs the power
to continue to be independent school districts. The bill
contemplated the creation of a type of third class borough
such as Haines. It would not allow the borough, however, to
take over the education responsibility that is now being
provided by home rule and first class cities in the
unorganized boroughs. She noted the cities would be part of
the borough but would continue to operate the school
districts same as presently. Technical changes were made in
this bill to treat these particular types of cities in the
new boroughs as though they were not in a borough for the
purpose of exercising their own local taxing ability. The
obvious dilemma posed by the bill is the fact that in a
third class borough the borough assembly serves as the
school board for that type of municipality. Under this
bill, the cities, which would be operating independent
school districts, will none the less be part of the borough,
and those individuals would presumably be voting for the
borough assembly members. She said there was no proposed
solution for that result at this time. However, this was
the most interesting legal and practical problem the bill
raised at this time.
Senator Adams asked that the bill be reviewed section by
section. He said he had further problem with the assembly
acting as a school board.
Ms. Cook said the findings and purpose was self-explanatory.
The second section was the heart of the mechanism that would
be used to form the new borough. It placed the duty upon
Community and Regional Affairs to prepare incorporation
proposals for each of the model boroughs that have already
been identified by the local boundary commission. During
this process there is a public hearing requirement. The
proposal would outline the specifics that would apply to
each individual borough. The State Assessor was required to
make an estimate of the true and full value of taxable
property in each of these boroughs within a fairly short
time period, by 1 January 1999. However, the actual
boroughs would be phased in by Community and Regional
Affairs, depending on the size of the borough, over a four-
year period. Receiving all the proposals at the same time
overwhelms neither the department nor the local boundary
commission. The Constitution requires there be standards
for borough incorporation and those standards are actually
set out in statute. If the local boundary commission
determines that a particular proposal does meet the
standards then the borough is set for incorporation. They
can request changes to a proposal and send it back to
Community and Regional Affairs. Once a proposal is
accepted by the local boundary commission then there is an
election of initial officers and there are time periods
within which the election must be held. The borough
essentially will be incorporated once those initial officers
have been elected.
Senator Adams asked what would happen if no one ran for any
of the elected seats, there were no officers and they did
not want to be a borough. Ms. Cook indicated there was no
mechanism to address that possibility in the bill.
Senator Phillips asked about a write-in possibility. Ms.
Cook reiterated that possibility was not addressed. She
noted that section five contained technical changes to
existing law, which included a change to the chapter dealing
with education. She noted the different treatment for home
rule and first class cities in the new boroughs and the fact
that they would continue to be independent municipal school
districts. The new third class boroughs would also be
school districts. Section six was a technical amendment to
define the term "non-area wide". Section seven was cleanup
language. Section eight referred to property tax and the
taxing powers of cities located within boroughs. She
removed the application of this section to third class
boroughs organized after a certain date. Section nine was a
new amendment noting the assessment of taxes.
Senator Adams, with reference to section eight, asked if
cities within a borough under present law would remain the
same if the bill were to pass? Ms. Cook said only those
types of cities within the new boroughs would be affected.
It would not change existing situations with respect to
boroughs and cities currently in existence. That was
achieved by saying the provisions only applied to third
class boroughs incorporated after a certain point in time,
i.e. 1 January 1999. Therefore the present bill did not
alter the relationship in Haines between its city and its
borough. She explained that existing law did not allow the
formation of any new third class boroughs. Haines was the
only one being preserved with a slightly different
relationship as between the cities and the boroughs.
Section ten was the sales and use tax provision. She
explained that it had been attempted in this section to keep
the home rule and first class cities independent of the
borough with respect to their power to collect sales and use
taxes.
Senator Adams referring to home rule and first class cities
that collected the levy on sales and use tax, asked if it
went directly to them? Ms. Cook concurred. In further
response to Senator Adams she indicated that under existing
law a borough that imposes a tax on an area wide basis was
required to use that tax for an area wide service. One that
collects a tax on a non-area wide basis was required to use
that tax for a non-area wide service. Senator Adams further
inquired if a third class was area wide if there was only
one power and that was education? Ms. Cook concurred.
Co-chair Sharp asked if establishing enclaves of present
cities, for school purposes, out of the new borough that
would be formed, what powers would that particular borough
have that the cities would participate in other than
schools? Was not the only purpose of those boroughs going
to be schools? Ms. Cook responded that essentially that was
correct. Third class boroughs do have the power to
establish service areas. A service area could include a
city or a portion or a city. She explained this was with
respect to existing law having to do with third class
boroughs. They had a very limited governmental authority,
the most limited of all the municipalities in the State.
They can only exercise the power of taxation and the power
of education on an area wide basis. They do, however, have
the power to exercise other municipal functions on a service
area basis.
Ms. Cook continued to section twelve, which made the act
conditional upon the passage of SB 36, which is now
presently in the House, and would change the formula
funding. If a version of SB 36 did not pass in conjunction
with the way this bill was drafted, it would not take
effect. Section thirteen noted an effective date of 1 July
1998.
Senator Adams asked if the version of SB 36 referred to by
Ms. Cook was the same version, which passed the Senate? Ms.
Cook indicated that it was not. However, she said that the
way the present bill was drafted it stated that if any
version of SB 36 passed. She said the committee may want to
alter this provision.
Co-chair Sharp thanked Ms. Cook for her time and assistance
to the committee.
Senator Adams asked if someone was available from the
Department of Community and Regional Affairs to testify on
the bill.
Co-chair Sharp indicated that Pat Poland was present.
Pat Poland, Director, Division of Municipal and Regional
Assistance, Department of Community and Regional Affairs
testified before the committee via teleconference from
Anchorage. He noted that Steve Van Sant, State Assessor was
also present via teleconference.
He said the department had many major policy concerns
regarding the mechanisms proposed by this legislation.
These included equal protection issues, incompatibility with
the concept of borough government in Alaska, fiscal impacts
on first class and home rule cities in the unorganized
borough. He noted that while the bill may enhance the
fundamental right of equal protection in some regards, it
would significantly diminish it in other respects. For
example, he noted that the bill stipulated that each home
rule and first class city within a third class borough
incorporated after 1 January 1999 must operate a city school
district. The same duty or authority was denied to home
rule and first class cities in third class boroughs formed
prior to 2 January 1999. It also was denied to all other
organized boroughs. The department is unaware of any
rational basis for treating home rule and third class cities
in third class boroughs formed after 1 January 1999
differently. Another significant concern regarding equal
protection exists with respect to the election and operation
of the assemblies of those boroughs created under this
legislation that would include home rule and first class
cities. Those assemblies would be comprised of residents of
the entire borough, including individuals living in home
rule and first class cities within the borough. Yet, those
assemblies would be almost exclusively governing matters
with respect to education and taxation. In a number of
instances, home rule and first class cities in the boroughs
to be formed under this legislation would comprise of
substantial or even majority population of the borough; this
circumstance being the result of a grossly inappropriate
form of local representation. As written, the bill leaves
in place the provision of AS 29.20.300(b), which stipulates
the assembly of a third class borough was also the school
board for the borough. Residents of the borough created
under this bill, who live inside home rule or first class
cities would seem to be unqualified or at least
inappropriate for the borough school board, since they would
be residents of a separate school district. The department
further believed that this present bill was incompatible
with the traditional concept of borough government in
Alaska. He said the intent of the legislation was to
provide for the uniform requirement of local contributions
and support of schools in all regions of the State. The
legislation accomplishes that end by abandoning the borough
government concept in at least ten prospective boroughs,
which would include sixteen separate home rule or first
class cities.
(Tape #81, Side B switched to Tape #82, Side A.)
Mr. Poland continued circumstances appeared to conflict with
the intent of Article 10, Section 7 of the Constitution,
which provides in relevant part that, "City shall be a part
of the borough in which they are located." He noted that
borough governments were intended to provide essential
services on a regional basis and to use regional resources;
to serve both urban and rural areas. He said SB 337
disregarded these fundamental principles. The department
believed that third-class boroughs were not viable
institutions. He referred to Haines and said they were the
only third class borough formed between 1968 - 1985. Due to
inadequacies the Legislature repealed the law allowing the
incorporation of third-class boroughs thirteen years ago.
Some inadequacies were lack of area-wide planning, platting
and land use regulations, inability of third-class boroughs
to provide any area-wide service or function other than
education and taxation. Further limitations on the third-
class borough have resulted in proliferation of service
areas to meet the needs of residents; conflicts within the
City of Haines which has effectively been forced to provide
certain services with benefit the entire Haines Borough,
specifically tourism activities. Due to these conflicts,
both the City of Haines and the Haines Borough are
developing a petition to dissolve both local governments and
consolidate under home rule borough. It was felt that if a
third-class borough could not function adequately under such
small circumstances, then it cannot be expected to function
adequately in a region encompassing vast areas with diverse
populations. In referring to first class borough and home
rule cities the fiscal impact would be significant. Certain
State and Federal funds would be eliminated. The obligation
to provide education would continue, however, the funding
loss by the cities and gained by the new boroughs would be
required to be used to provide education services in areas
outside the cities only. Unorganized areas would feel these
impacts most strongly. Some impacts that could be
experienced were illustrated as follows: Wrangell-
Petersburg would lose fifty percent of raw fish tax revenues
now being received based on fish processing occurring within
respective city boundaries. Based on a five year average
Petersburg would lose $385,000 and Wrangell about $35,000.
These cities would no longer be eligible for Federal
payments under the National Forest Receipts Program or the
Federal Payment in Lieu of Taxes Program. The combined
annual loss to these cities would be $700,000 for Petersburg
and $500,000 for Wrangell. He further noted that the
Aleutians West Borough would annually lose $1.4 million in
fish tax. Unalaska would lose $1.5 million; Cordova and
Valdez would lose their fish tax and also their Federal
National Forest Receipts Program; Craig, Klawock and
Hydaburg would suffer similar losses. The creation of
boroughs would cause much resentment and animosity. In
wrapping up, Mr. Poland said provisions penalizing the
formation of boroughs should be removed.
Co-chair Sharp thanked Mr. Poland for reading his testimony
into the record and asked that a written copy be submitted
to the committee. He asked how it could be justified
mandatory borough formations stifled economic development
when noting that borough formation was mandated back in the
'70's, even after public votes of two and three times
against it.
Senator Phillips referred to a public outcry against paying
of local taxes a couple of weeks ago. The answer was
definitely "no" in unorganized areas for education purposes.
(It is noted a malfunction in Senator Phillips' microphone.)
...at least this way they have local control how and where
money was being spent with regards to education.
Co-chair Sharp noted that there would be public testimony
this evening from 6:00 p.m. - 8:30 p.m.
Senator Adams noted that the State Assessor was present and
asked regarding page two, line eighteen wherein the State
Assessor shall estimate the full and true value of the
property tax. He said that in the past a mixture of
communities had been taken in order to try to get the full
and true value. Specifically, he asked how would the
department get the true value of communities down in Lower
Kuskokwim?
Steve Van Sant, State Assessor, Department of Community and
Regional Affairs testified via teleconference from
Anchorage. He explained the Lower Kuskokwim would be
difficult. The assessment would be more formula generated
as opposed to specific property evaluation.
Senator Adams further asked if the formation of third-class
boroughs would cause the State of Alaska to lose any money
to new boroughs that would be formed; i.e. any pipeline tax?
Mr. Van Sant said the possibility certainly existed along
the pipeline corridor if more communities decided to levy a
property tax. One recommendation by the department would be
that if the third-class boroughs are required to have a four
mill equivalency for local contribution for education, that
the evaluation of the pipeline corridor be excluded from
that full value. Otherwise, it would force them to levy a
property tax, which would take the money out of the State's
general fund and put it into a local tax base.
Senator Adams said the way the legislation was presently
written it provided for people throughout Alaska more
government and more taxes. He asked if this would stifle
economic development; i.e. a mine in his district or Delta
Junction, by having to put taxes on the project or its
workers? Mr. Van Sant said he could not answer this
question.
Co-chair Sharp set aside this bill in and said it would be
taken up again this evening at 6:00 p.m. in order to hear
the public testimony scheduled at that time. He called HB
53.
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